Home Tech My 2022 Big-Tech Buy List – Seeking Alpha

My 2022 Big-Tech Buy List – Seeking Alpha

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My 2022 Big-Tech Buy List – Seeking Alpha
Tel Aviv, ISRAEL - May 28 2020 : FAANG Big Tech icons (Facebook, Amazon, Apple, Netflix & Google). FAANG is an acronym Of the 5 strong stocks in the Nasdaq technology stocks index.

MagioreStock/iStock Editorial via Getty Images

MagioreStock/iStock Editorial via Getty Images
Big tech went through a significant correction to kick off the new year. For instance, Apple (AAPL) dropped by 15%, while Microsoft (MSFT) fell by about 20%. Other big tech names were impacted much worse, some declining by 40-50% from their highs. However, we began seeing a recovery in big tech around earnings season. Several bellwether names announced stellar results despite specific companies missing estimates and disappointing guidance. While we will probably continue seeing Fed-induced volatility surges for some time, several mega-cap tech names likely represent significant buying opportunities. We should see another bout of volatility going into and through the upcoming FOMC meeting in March. Nevertheless, any significant weakness should lead to buying opportunities, in my view. So, here are six big-tech stocks to consider.
Microsoft delivered a solid earnings report. The company earned $2.48 per share vs. the anticipated $2.31 EPS figure. Microsoft also delivered $51.73 billion in revenues vs. the expected $50.88 billion. Revenue increased 20% YoY while EPS grew by 22%. Perhaps the best part of the report was that the company guided higher to $48.5 to $49.3 billion in revenues next quarter, topping the expected $48.23 billion figure.
Microsoft has illustrated robust earnings growth in prior years and should continue to grow earnings as the company advances. Additionally, while the company’s revenue growth rate should slow down from 20%, we should still see 10-15% revenue growth in future quarters.

MSFT EPS trajectory

MSFT EPS trajectory (SeekingAlpha.com )

MSFT EPS trajectory (SeekingAlpha.com )

MSFT revenue growth

MSFT revenue growth (SeekingAlpha.com )

MSFT revenue growth (SeekingAlpha.com )
Despite Microsoft’s considerable size and market share, the company continues to grow revenues and EPS notably, and the tech juggernaut’s growth runway seems far from over. Nevertheless, at about 30 times forward EPS estimates, Microsoft is not cheap right now. While there are reasons why investors are paying up for the stock, there may be limited upside given Microsoft’s rich valuation.

MSFT stock technical chart

MSFT (StockCharts.com )

MSFT (StockCharts.com )
The company’s technical image was improving, until recently. Now we see a move back towards the 200-day MA. If Microsoft closes decisively below this technical level, the stock could be in trouble. Overall, the technical image is not that bullish right now. In fact, a cautious approach may be best here for now.
Year-end price target range: $350-380 (20-30% potential upside)
Apple reported a solid quarter. EPS came in at $2.10 vs. the $1.89 estimate. The company shattered revenue estimates, delivering $123.9 billion vs. the expected $118.66 billion. Revenue growth was 11% YoY, and EPS increased by 25% in the same time frame. The company did not provide official guidance, but we see that momentum is strong at Apple, and future earnings should continue to surpass analysts’ calls.
However, Apple’s revenue growth rate will likely continue to decelerate in the near term. The company’s revenue and EPS growth may hit the single digits in future years, and the company appears to be on the verge of becoming a value stock again.

AAPL EPS trajectory

AAPL EPS trajectory (SeekingAlpha.com )

AAPL EPS trajectory (SeekingAlpha.com )

AAPL revenue growth

AAPL revenue growth (SeekingAlpha.com )

AAPL revenue growth (SeekingAlpha.com )
Apple’s valuation of 28 times this year’s EPS estimates seems relatively elevated provided the company’s subdued growth rate. In my view, Apple is not a growth company anymore. It may continue to expand revenues and EPS in future years, but likely at a single-digit pace for the most part. Therefore, the company may deserve a lower multiple, and the stock probably has limited upside from here in 2022.

AAPL technical chart

AAPL (StockCharts.com )

AAPL (StockCharts.com )
After the recent rebound phase, the stock has stalled and is at risk of moving lower again. Unless Apple moves above previous ATHs, the technical image could continue to weaken, and the stock may trade sideways or lower for a while.
Year-end price target range: $180-200 (8-20% potential upside)
Alphabet (GOOG) (GOOGL) came out with a huge quarter. The company delivered EPS of $30.69 vs. $27.34 expected by analysts. Revenue came in at $75.33 billion, well above the $72.17 billion expected figure. YoY EPS increased by 17%, and revenues surged by 32%.
While EPS growth will likely be single digit this year, it should pick back up to 15-20% in 2023. Moreover, we will likely continue seeing 15-20% revenues growth for several years as the company advances. Generally, Alphabet appears to have a healthy growth runway ahead as long as the overall economy remains robust and ad spending continues increasing.

Google EPS trajectory

GOOG EPS trajectory (SeekingAlpha.com)

GOOG EPS trajectory (SeekingAlpha.com)

Google revenue growth

GOOG revenue growth (SeekingAlpha.com )

GOOG revenue growth (SeekingAlpha.com )
Alphabet is currently trading at around 23 times this year’s EPS estimates, which is relatively inexpensive provided the company’s growth rate. The company announced a stock split which is very constructive and should serve as a positive catalyst for shares to move higher in the coming months.

GOOG technical chart

GOOG (StockCharts.com)

GOOG (StockCharts.com)
While GOOG’s technical image improved notably after the tech-rebound, it’s been all over the place since recent earnings. In fact, GOOG has slipped by 12% since the stock reached its high post-earnings announcement. We are below the 200-day MA, and we risk moving lower. The technical image does not look favorable now, yet the stock is trading at a relatively low valuation. Therefore, the technical setup should improve for Alphabet as we advance through 2022.
Year-end price target range: $3,300-3,600 (23-34% potential upside)
Amazon (AMZN) also reported a robust quarter. The company cruised past EPS estimates with its $5.80 vs. the $3.57 estimate figure. Revenue was about in line, $137.4 billion vs. the expected $137.6 billion. YoY EPS surged by 97%, while revenues increased by 15%, illustrating the company’s remarkable profit potential. However, Amazon’s forward revenue guidance was $112-117 billion, below the $120 billion estimates. Still, the company should continue to post impressive EPS and revenue growth as it moves forward.

AMZN EPS trajectory

AMZN EPS trajectory (SeekingAlpha.com)

AMZN EPS trajectory (SeekingAlpha.com)

AMZN revenue growth

AMZN revenue growth (SeekingAlpha.com)

AMZN revenue growth (SeekingAlpha.com)
We see that Amazon’s earnings potential is quite remarkable. The company’s EPS is not nearly as high as it could be because Amazon continuously focuses on growth. As the company eventually approaches full maturity, it will likely produce remarkable value for shareholders. However, for now, we see that Amazon has plenty of growth ahead, as the company should continue delivering 15-20% revenue growth in future quarters.
It isn’t easy to value Amazon on a P/E basis, but it trades at about 45 times 2023’s consensus estimate calls. While this seems relatively expensive, it is not historically high for Amazon. The company has immense earnings potential and should continue to grow revenues at about 15-20% in future years. Amazon’s technical image may not be as bullish as some other tech-titans, but its share price should continue expanding from here.

AMZN technical chart

AMZN (StockCharts.com)

AMZN (StockCharts.com)
Amazon has remained rangebound throughout most of last year. However, the stock is not as expensive as it seems on paper, and shares could break out soon if the broader economy remains strong. The stock’s appreciation could accelerate once above the $3,000 breakout point.
Year-end price target range: $3,500-3,800 (13-23% potential upside)
Meta (FB) essentially crashed after its earnings announcement. While the company beat slightly on revenues, EPS came in at $3.67, light compared to the expected $3.84 figure. What’s worse is that the company guided notably lower on revenues, $27-29 billion vs. the expected $30.15 billion figure. Expenses also turned higher than many investors expected. EPS declined by 1.5% YoY, despite revenues surging by 20%. Near-term EPS are likely to fall, while the company’s revenues should continue to increase at low double-digits.

FB EPS trajectory

FB EPS trajectory (SeekingAlpha.com)

FB EPS trajectory (SeekingAlpha.com)

FB revenue growth

FB revenue growth (SeekingAlpha.com)

FB revenue growth (SeekingAlpha.com)
FB has illustrated strong earnings growth in prior years. However, the company’s future earnings potential is not as clear now. The company is showing increasing costs due to Reality Labs’ spending, and its core ad spending business may be impacted by possible market turbulence. Therefore, while the company should continue to expand revenues at double-digits, FB may show minimal or even declining EPS growth in future quarters. The good news is that Meta is trading at only about 18 times this year’s EPS estimates. Unfortunately, its true earnings potential and growth runway are unclear now.

FB technical chart

FB (StockCharts.com )

FB (StockCharts.com )
Despite Meta’s deep decline, it’s difficult to call the technical image bullish here. Serious technical damage has been done, and there is no clear catalyst to push shares higher in the near term. However, the downside is likely limited as well. I suspect the stock will likely move sideways for a while and if further growth deterioration is avoided, it can probably fill the gap up to $300, then possibly move higher after that.
Year-end price target range: $280-320 (27-45% potential upside)
While Netflix (NFLX) delivered decent numbers, the stock tumbled following its earnings report. Netflix reported in-line revenues and a substantial EPS beat ($1.32 vs. 82 cents). Net subscriber ads also beat expectations, 8.28 million vs. the expected 8.19 million. The bad news was that Netflix guided to just 2.5 million net ads in Q2 vs. the anticipated 6.93 million, and the stock got punished for the poor guidance.

NFLX EPS Trajectory

NFLX EPS Trajectory (SeekingAlpha.com )

NFLX EPS Trajectory (SeekingAlpha.com )

NFLX revenue growth

NFLX revenue growth (SeekingAlpha.com )

NFLX revenue growth (SeekingAlpha.com )
However, we should continue seeing relatively robust revenue growth and substantial EPS expansion in future quarters. The company should continue delivering 10-15% revenue growth in the coming quarters, and the company’s EPS growth should be substantial (25-50% YoY) as Netflix becomes more profitable in future years.
The primary factor troubling investors is that Netflix’s growth story is at risk here, and slower growth may impact the company’s future earnings. While the company’s revenue growth may slow to around 10% in the coming years, Netflix’s profitability and EPS could surge. The company is only trading at about 26 times 2023’s consensus analysts’ EPS estimates, which is relatively inexpensive provided the company’s growth rate and earnings potential.

NFLX technical chart

NFLX (StockCharts.com)

NFLX (StockCharts.com)
Netflix had a considerable decline, and shares became dramatically oversold. Now the company’s stock price and valuation are in a much healthier place. I suspect we can see a gap fill to the $500-550 level soon. Moreover, if subscriber growth recovers next quarter, the stock could increase substantially.
Year-end price target range: $500-600 (33-50% potential upside)
We witnessed some fascinating earnings results from the big tech names. Not all were great, and those that guided lower got punished badly. Netflix’s stock dove by about 50% from its ATH before rebounding from the $360 level. Meta is still trying to recover after a 40%+ nose dive. In my view, the best buys in the big-tech space are Alphabet (score 84) and Amazon (score 82). Despite being richly valued, Microsoft also came in with a relatively high rating (score 79), making the company a buy, in my view. Netflix also scored well (80), and the stock could make up a lot of ground, as its valuation became relatively cheap in the downturn. FB scored near the bottom (75), but its stock could also do well after a consolidation/recovery. Apple received the lowest score (74) due to its valuation and lower growth prospects. While Apple is last on my buy list, its stock could rebound and do well as the year advances.
Naturally, there are risks with tech stocks, even the big names. One considerable risk is a broad market selloff. We saw a correction recently, but there is no guarantee that the worst is over. With the Fed tightening monetary policy now, we may see further weakness in growth stocks, and big-tech is not immune to the fallout. There may be more downside ahead, and the correction could enter its second stage soon. In this scenario, we could see the S&P 500/SPX (SP500) move down to about the 3,800-4,000 range, which would translate to substantially more downside for the names mentioned in this article. I would look for entry points at lower price levels in this bearish case outcome. Independent from a broad market decline, specific names on my list could miss growth or earnings estimates, leading to lower stock prices in the near term. Other risk factors include
Therefore, one should consider the risks carefully before investing in the stocks mentioned in this article.
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This article was written by
Hi, I am Victor Dergunov, MBA. Over the years, some of my top investments include Apple, Tesla, Amazon, Netflix, Facebook, Google, Microsoft, Nike, JPMorgan, Bitcoin, and much more. It all goes back to looking at stock quotes in the old Wall St. Journal newspaper when I was 16. What do these numbers mean, I thought, and more importantly, how do I make money from this? Fortunately, my uncle was a successful commodities trader on the NYMEX in the 70s and 80s, and I got him to teach me how to trade and invest. I bought my first actual stock in a company when I was 20, and the rest, as they say, is history. 
Disclosure: I/we have a beneficial long position in the shares of AMZN, FB, NFLX, GOOG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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